Small Cap Value Report (10 Jun) - PDC, LTC, RWS, XAR, SNCL, FKL, PGB, VLX

Monday, Jun 10 2013 by

Good morning! Firstly this morning I've been having a quick look at results from (LON:PDC) . The big question here is whether they are able to maintain the dividend, which was reduced from 3.15p to 2.55p for year ended 2011/12.

They announce this morning that the final dividend has been maintained at 1.5p, giving 2.55p total for the year, which means the shares have an enormous, but clearly unsustainable yield of 11.9%, with the share price at 21.5p.

Sure enough, when you dig deeper into the narrative, they say that future dividend policy will require them to be covered by earnings. This year EPS was 1,69, so the full year dividend was only 66% covered by earnings. Therefore if earnings are unchanged next year, then the dividend is likely to be cut by at least a third.

They also update on a change of strategy, towards a cloud-based business model. The outlook statement sounds too cautious for me to want to investigate further, so I'll pass on this one.



Next let's have a quick look at results from Latchways (LON:LTC). This is a company which I've previously mentioned positively in these morning reports. They are a maker of specialised safety equipment, e.g. large suction pads which are used by workers in the aviation industry, so that workers are tethered to the plane wing, and can move about on the plane wing without any risk of falling off.

I like this company's niche products, it's high operating margins (indicating pricing power, hence a product which is in demand), the strong balance sheet with net cash, and a reasonable dividend yield.

In the past the shares have looked a tad expensive, but their results this morning look good, and the valuation now looks more sensible to me. They have delivered a strong second half, and full year revenues have risen 2.5% to £42.4m.

Adjusted profit before tax is up 3.3% to £10.3m. Adjusted basic EPS is up 6.5% to 70.3p.

At a mid-price of 1034p that translates into a PER of 14.7, which is probably about the right price. Bear in mind that net cash of £10.5m is equivalent to 94p per share. More importantly, you know that a company with a decent net cash buffer won't need to do an unexpected fund-raising if it…

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Grafenia plc, formerly plc, is engaged in printing business. The Company's segments include UK & Ireland, Europe and Other. Its brands include Nettl, Marqetspace, Brambl, BrandDemand, Flyerzone, w3p, w3shop, TemplateCloud and Nettl enables the simplified delivery of websites, e-commerce shops and the like. Marqetspace sells print online to professional buyers. supplies small and medium-sized enterprises with graphic design and printing services through its partner network. w3p is a Web-to-print software-as-a-service (SaaS) solution. w3shop uses the same technology as w3p, but the orderflow has been adapted for the micro business and consumer marketplace. Flyerzone is an online print business. BrandDemand provides print management services through online portals. Brambl is a Web design tool, which helps graphic designers build Websites. TemplateCloud is a SaaS offering crowd-sourced templated graphic design to other online printers. more »

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Latchways plc is engaged in the manufacture and distribution of safety equipment. The Company's solutions include roofing solutions, industry solutions, utilities solutions, telecoms solutions, ladder solutions, windows solutions and aviation solutions. Its fall protection solutions can be deployed on a range of buildings and structures, including industrial units, manufacturing plants, warehouses, loading bays and office complexes. Its self-retracting lifelines (SRLs) provide a frictionless braking system. Its Personal Rescue Device (PRD) is an integrated harness system for self-rescue. Its offerings include WalkSafe walkways, WalkSafe Fragile Roof Covers, PushLock, WinGrip Single-User System, WinGrip Multiple-User Lifeline System, WinGrip Barrier System, WinGrip Testing, VersiRail and Temporary Rope System. It serves various sectors, including aerospace, power transmission, utilities and telecommunications. The Company has operations in the United Kingdom, Europe and North America. more »

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RWS Holdings plc is a holding company, which provides patent translations, intellectual property support services, technical and commercial translations and linguistic validation services, through its subsidiaries. The Company's segments include Patent translation division, Life science division, Commercial division and Information division. The Patent translation division provides patent and technical document translation and filing services with offices in the United Kingdom, the United States, Europe, Japan and China. The Life science division provides technical translations and linguistic validation to medical and pharmaceutical sector. The Life science division includes Corporate Translations Inc., and medical translation and Pharmaquest linguistic validation businesses. The Commercial division provides non patent technical translation and localization services. The Information division offers patent search, retrieval and monitoring services, and patent database service, PatBase. more »

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9 Comments on this Article show/hide all

Gostevie 10th Jun '13 1 of 9

Hi Paul,

Re FKL, it's interesting that you mention their ownership of Momart. They were a customer of ours back in the 90s when I worked for a packaging supplies company. At the time they were pretty much the only player that the top galleries and auction houses etc. would go to if they had to transport particularly fragile or valuable works of art. If that is still the case they have a nice little niche and presumably quite a bit of pricing control.


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Fegger 10th Jun '13 2 of 9

Thanks to Paul who highlighted Xar about 10 years ago in his pub. Ive been a happy holder since then. Its rare you get a positive 'profit warning' like this morning - absolutely stunning. Ive been tempted to top slice for a while but will hold on until after 29th August when there will be a further update.

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campbellsmith 10th Jun '13 3 of 9

Concerning FOGL: When I last looked at this company, I could not see any mention of them paying a dividend. Can you point me to where you saw this, please?

Thank you,

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shanklin100 10th Jun '13 4 of 9


It would be very interesting to hear your thoughts on SID following your meeting with them. I agree it is a positive that they are investor-friendly but they seem to have made a right mess of things in terms of whether or not they need, or are looking for, more funding to facilitate their growth plans. Specifically, and IIRC, there have been two Edison reports suggesting they might need/want to raise funds to accelerate their growth, a recent RNS which did not mention funding at all, followed by 2+interviews where the CE made it clear that new funding was not required. But why was that not made clear in the RNS?

TBH I don't care whether or not they would benefit from some additional investment. I was quite happy holding SID shares when a more muted growth rate and no fund-raising was being suggested. Unfortunately, the right mess they've made on the communication front seems to have knocked 25%+ off the SP.


I would be delighted to be corrected if any of the above is incorrect.

Best wishes, Martin

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muckshifter 10th Jun '13 5 of 9

Different company Campbell, Paul is discussing Falkland Island Holdings, not fogl.

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Cisk 10th Jun '13 6 of 9

In reply to shanklin100, post #4

shanklin100, completely agree with you.

The off/on/off subject of fundraising has spooked the market for these shares, and the uncertainty has impacted the shares. I would support a fundraising - so if they are going to do it, they should get on with it.

I think there is a good business there, with significant opportunities for growth, and it wouldn't surprise me if someone like Babcock International (LON:BAB) would take an interest in Silverdell (LON:SID), as they are building a significant presence in nuclear decommissioning.

I had hoped to make the meeting myself and unfortunately couldn't attend due to work commitments, but will be interesting to hear Paul's thoughts after the event.

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muckshifter 10th Jun '13 7 of 9

Although I've not studied SID carefully as yet, on an initial look through I noticed a very significant (to me anyway) beginning of change in their risk profile. They had, I believe, bought a defunct Hydro scheme in Canada, which looked small on the face of it, but was actually quite significant in terms of size. But the real change was, imho, potentially in the risk profile of this transaction, compared to their normal contracting operations. If they get it right, it is likely to be of a different order of profitability to their normal contracting work - that tends to be how higher risk / reward works, but it did make me wonder if the CEO was just showing a bit of caution by suggesting the possible need for more capital, but then finding the job living up to best expectations perhaps, decided it was not needed.

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Paul Scott 10th Jun '13 8 of 9


We had a very useful meeting with Silverdell (LON:SID) this afternoon, at FinnCap's offices. I very much like the down to earth CEO there, and this must be about the 4th time we've seen him, so have followed his progress as Silverdell has grown.

They admitted that the IR message could have been better communicated, in that an Edison note was issued which spooked investors into thinking that another fund-raising might be on the cards, which was exacerbated by a Shares magazine article in a similar vein.

My understanding from today is that the existing growth plans do NOT require any additional financing, but that the company is considering going for a higher growth plan, which would potentially require some additional financing, which might be more bank debt, leveraging the balance sheet of customers, more equity, etc. But that's probably more of an issue next year.

I think it was a mistake to raise the issue publicly. Markets don't like uncertainty, and they would have been better off just not saying anything about faster growth, unless & until the necessary funding had been put in place.

Other than that, it all sounds like it's going well, with lots of encouraging noises about how the company is being better perceived by their customers, employees, etc.

I don't hold any stock currently, and am toying with the idea of buying back in, although I'd be happier around 12p than 14p.

Regards, Paul.

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shanklin100 11th Jun '13 9 of 9

Thank you Paul

SID must wish they had never mentioned funding outside the boardroom.

Cheers, Martin

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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